Q1 2024 Privia Health Group Inc Earnings Call
Operator: Welcome to the Privia Health First Quarter 2024 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Robert Borchert, SVP of Investor and Corporate Communication. Please go ahead.
Welcome to the Premier Health first quarter 2024 conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you wouldn't hear an automated message passing that your hand is raised to work.
Troy: Troy your question.
Troy: Press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker, Robert Prichard S V P of Investor and corporate Communications. Please go ahead.
Robert P. Borchert: Thank you, Tana, and good morning everyone. Joining me are Parth Mehrotra, our Chief Executive Officer, and David Mountcastle, our Chief Financial Officer. This call is being webcast and can be accessed in the Investor Relations section of PriviaHealth.com. Today's financial press release and slide presentation are posted on the Investor Relations pages of PriviaHealth.com. Following our prepared comments, we will open the line for questions. We ask that you please limit yourself to one question only and return to the queue if you have a follow-up so we can get to as many questions as possible.
Robert P. Borchert: Thank you Tania and good morning, everyone joining.
Robert P. Borchert: Joining me are part of the Roche, our Chief Executive Officer, and David Mountcastle, Our Chief Financial Officer. This call is being webcast can be accessed the Bachelor Asia, It's actually a pretty health dot com.
Robert P. Borchert: Today's financial press release, and slide presentation are posted on the Investor Relations page, it's up pretty health Dot com. Following our prepared comments, we will open the line for questions. We ask that you. Please limit yourself to one question only return to the queue. If you have a follow up so we can get to as many questions as possible.
Robert P. Borchert: The financial results reported today are preliminary and are not final until a Form 10-Q for the first quarter ended March 31, 2024, is filed with the Securities and Exchange Commission. Additionally, some of the statements we will make today are forward-looking in nature, based on our current expectations and view of our business as of May 9, 2024. Such statements, including those related to our future financial and operating performance and future business plans and objectives, are subject to risks and uncertainties and may cause actual results to differ materially.
Robert P. Borchert: The financial results reported today are preliminary and are not final until our Form 10-Q for the first quarter ended March 31, 2024 is filed with Securities and Exchange Commission.
Robert P. Borchert: Some of the statements we will make today are forward looking in nature based on our current expectations in view of our business as of May nine 2024, such statements, including those related to our future financial and operating performance and future business plans and objectives are subject to risks and uncertainties that may cause actual results to differ materially as a result, these statements should be considered along with the cautionary statement.
Robert P. Borchert: As a result, these statements should be considered along with the cautionary statements in today's press release and the risk factors described in our company's most recent SEC filing. Finally, we may refer to certain non-GAAP financial measures on the call. Reconciliation of these measures to comparable GAAP measures is included in our press release and the accompanying slide presentation posted on our website. Now, I'd like to turn the call over to my CEO, Parth Mehrotra.
Robert P. Borchert: In today's press release and the risk factors described in the company's most recent SEC filings.
Finally, we may refer to certain non-GAAP financial measures on the call reconciliations of these measures to comparable GAAP measures are included in our press release and the accompanying slide presentation posted on our website.
Robert P. Borchert: Now I'd like to turn the call over to my CEO Parker Ultra Thank you Robert and good morning, everyone.
Parth Mehrotra: Thank you, Robert, and good morning everyone. Privia Health delivered solid first quarter results to start 2024 as we continue to drive towards our long-term vision to build one of the largest ambulatory care delivery networks in the nation. This morning, I'll cover some key highlights and provide a business update, and then David will discuss our recent financial performance and our 2024 guidance outlook before we take your question.
Parker Ultra: <unk> delivered solid first quarter results to start 2024, as we continue to drive towards our long term vision to build one of the largest ambulatory care delivery networks in the nation.
Parker Ultra: This morning, I'll cover some key highlights and provide a business update and then David will discuss our recent financial performance and our 2024 guidance outlook before we take your questions.
Parth Mehrotra: During the first quarter, Privia Health continued to execute at a very high level, with a focus on growth and profitability. As we noted on our February earnings call, we were able to nimbly respond to the changing Medicare Advantage reimbursement environment and protect our earnings power by restructuring certain MA capitation contracts. We believe these actions demonstrate the flexibility, diversity, and differentiation of the Privia business model. Our Q1 practice collections increased 7.4% year-over-year, which included the impact of restructuring certain MA capitation contracts for more favorable terms.
Parker Ultra: During the first quarter <unk> has continued to execute at a very high level with a focus on growth and profitability.
Parker Ultra: As we noted on our February earnings call, we were able to nimbly respond to the changing Medicare advantage reimbursement environment and protect our earnings power by restructuring certain emmick application contracts.
Parker Ultra: We believe these actions demonstrate the flexibility diversity and differentiation of the <unk> business model.
Parker Ultra: Our Q1 practice collections increased seven 4% year over year, which includes the impact of restructuring certain M. A capitation contracts for more favorable towards our topline performance continues to reflect steady growth of same store and new provider additions.
Parth Mehrotra: Our top-line performance continues to reflect steady growth of Same Store and New Provider Edition. Adjusted EBITDA was up more than 18% as we continue to benefit from operating leverage. This was despite absorbing incremental investment in new markets we've entered over the past 18 months. We're also being prudent and assuming a minimal increase in accrued shared savings in 2024 versus 2023.
Parker Ultra: Adjusted EBITDA was up more than 18% as we continue to benefit from operating leverage.
Parker Ultra: This was despite absorbing incremental investment in new markets, we've entered over the past 18 months.
We are also being prudent and assuming minimal increase in accrued shared savings in 2024 versus 2023.
Parth Mehrotra: Our sales pipeline is strong across all our markets, and we have a robust business development pipeline of new market opportunities. Our strong balance sheet and free cash flow profile allow us the flexibility to take advantage of any dislocations in the physician enablement space. So overall, we feel really good about our business momentum and operating execution in the current environment. We are closely monitoring medical cost trends and claims data so that we can be proactive in our actions.
Parker Ultra: Our sales pipeline is strong across all our markets and we have a robust business development pipeline of new market opportunities.
Parker Ultra: Our strong balance sheet and free cash flow profile allows us the flexibility to take advantage of any dislocations in the physician enablement space.
Parker Ultra: So overall, we feel really good about our business momentum and operating execution in the current environment.
Parker Ultra: Mostly monitoring medical cost trends and claims data so that we can be proactive in our actions we feel very positive about the moves we made in the past two quarters to mitigate the downside risk in our Medicare advantage book and are reiterating our full year 2020 for guidance.
Parth Mehrotra: We feel very positive about the moves we've made in the past two quarters to mitigate the downside risk in our Medicare Advantage book and are reiterating our full year 2024 guidance. A combination of our diversified value-based book and strong underlying fee-for-service business serving the entire physician practice continues to be a key differentiator. Privia's national footprint continues to expand as we build one of the largest primary care-centered delivery networks in the country.
Parker Ultra: The combination of our diversified value based book and strong underlying fee for service business, serving the entire physician practice continues to be a key differentiator.
Parker Ultra: Previous national footprint continues to expand as we build one of the largest primary care centric delivery networks in the country.
Parth Mehrotra: At the end of Q1, we had 4,359 implemented providers caring for over 4.9 million patients in 13 states and the District of Columbia. As of March 31st of this year, we estimate Privia serving approximately 1.14 million attributed lives across more than 100 value-based care contracts in commercial and government programs. The total attribute of lives increased more than 10% from Q1 a year ago. This positions our business as one of the broadest and most balanced value-based care platforms in the industry. Our commercial attributed lives increased 8% from last year to 685,000.
Parker Ultra: At the end of Q1, we had 4359 implemented providers caring for over four 9 million patients in coating states and the district of Columbia.
Parker Ultra: As of March 31 of this year, we estimate previous serving approximately 114 million attributed lives across more than 100 value based care contracts.
Parker Ultra: Commercial and government programs.
Parker Ultra: The total attributed lives increase more than 10% from Q1 a year ago.
Parker Ultra: This positions our business as one of the broadest and most balanced value based care platforms in the industry.
Parker Ultra: Our commercial attributed lives increased 8% from last year to 685000.
Parth Mehrotra: As we noted last quarter, our ability to earn care management fees and shared savings that are incremental to our highly predictable fee-for-service management fees offers a very unique value proposition to our medical groups in the commercial book of business. Core to our long-term strategy is to thoughtfully move lives into increased risk arrangements over time. When we are confident, it will provide significant opportunities for adjusted EBITDA and free cash flow growth. Our strong and stable performance is a testament to Privia's proven ability to manage risk across a diverse set of 100-plus value-based contracts.
Parker Ultra: As we noted last quarter, our ability to earn care management fees and shared savings that are incremental to our highly predictable fee for service management fees offers a very unique value proposition to our medical groups in the commercial book of business.
Parker Ultra: Core to our long term strategy is to potbelly move lives into increased risk arrangements over time. When we are confident it will provide significant opportunities for adjusted EBITDA and free cash flow growth.
Parker Ultra: Our strong and stable performance is a testament to previous proven ability to manage risk across a diverse set of 100 plus value based contracts, we leverage our clinical operations performance management actuarial expertise in close alignment with our physician partners to manage patients across the risk spectrum.
Parth Mehrotra: We leverage our clinical operations, performance management, actuarial expertise, and close alignment with our physician partners to manage patients across the respective. In aggregate, Privia's ACOs, or risk entities, are managing approximately $9 billion of medical spend in 2024 across commercial, MSSP, Medicare Advantage, and Medicaid programs. The current environment, the scale of our medical spend, and potential variability of shared savings require us to be particularly thoughtful in our risk-taking to maintain our earnings power for both our provider partners and our shareholders. We are well positioned to opportunistically increase our attribution in various risk arrangements over the next 24 months to drive future earnings growth. Now, I'll ask David to review our Q1 financial results and 2024 guidance outlook.
Parker Ultra: In aggregate previous acos or risk entities are managing approximately $9 billion in medical spend in 2024 across commercial MSP Medicare advantage and Medicaid programs.
Parker Ultra: The current environment scale of our medical spend and potential variability of shared savings require us to be particularly thoughtful in our risk taking to maintain our earnings power for both our provider partners and our shareholders.
Parker Ultra: We are well positioned to opportunistically increase our attribution and various risk arrangements over the next 24 months to drive future earnings growth.
Parker Ultra: Now I'll ask David to review, our Q1 financial results and 2024 guidance outlook.
David Mountcastle: Privia Health delivered another solid quarter of performance in the first three months of 2024. Our implemented provider count of 4,359 was up 17.3% year-over-year. Solid ambulatory utilization trends, new implemented providers, and additional attributed lives led to practice collections increasing 7.4% from Q1 a year ago to reach $707.7 million. As we noted in February, the balance and flexibility of our operating model enabled us to shift attributed lives out of capitated agreements for improved contribution margins. Most importantly, we continue to invest in existing and new market growth while generating operating leverage. Our adjusted EBITDA was up 18.1% over Q1 last year to reach $19.9 million.
David Mountcastle: Thank you Park.
<unk> delivered another solid quarter of performance in the first three months of 2024 are.
David Mountcastle: <unk> implemented provider count of 4359 was up 17, 3% year over year.
David Mountcastle: Solid ambulatory utilization trends, new implemented providers and additional attributed lives led to practice collections, increasing seven 4% from Q1, a year ago to reach $707 7 million.
David Mountcastle: As we noted in February the balance and flexibility of our operating model enabled us to shift attributed lives out of capitation agreements for improved contribution margin.
David Mountcastle: Most importantly, we continue to invest in existing and new market growth, while generating operating leverage.
David Mountcastle: Adjusted EBITDA was up 18, 1% over Q1 last year to reach $19 9 million.
David Mountcastle: Following our solid Q1 performance, we are reiterating our full-year 2024 guidance. Our business momentum and diversified book of business have positioned us well to drive organic provider growth, limit downside and risk arrangements, and increase operating leverage for adjusted EBITDA growth in 2024. Implemented providers are expected to increase 9.2% year-over-year to reach 4,700 by year-end at the midpoint of our guidance. As we noted in late February, we are also assuming a minimal increase in shared savings year over year as part of our prudent accruals.
David Mountcastle: Following our solid Q1 performance, we are reiterating our full year 2024 guidance, our business momentum and diversified book of business has positioned us well to drive organic provider growth limit downside risk arrangements and increased operating leverage for adjusted EBITDA growth in 2024.
David Mountcastle: Implemented providers are expected to increase nine 2% year over year to reach 4700 by year end at the midpoint of our guidance.
David Mountcastle: As we noted in late February we are also assuming minimal increase in shared savings year over year as part of our prudent accruals.
David Mountcastle: This implies expected 2024 growth in fee-for-service practice collections of approximately 10 percent, driven by provider growth in our more mature markets in 2023, as well as early provider growth momentum in newer markets. Adjusted EBITDA growth of approximately 21% at the midpoint of our guidance is expected to be driven by operating leverage in our more mature markets, which should more than offset new market entry costs. We also anticipate our newer markets to contribute significant growth in providers, attributed lives, and adjusted EBITDA in the future.
David Mountcastle: This implies expected 2024 growth in fee for service practice collections of approximately 10%.
David Mountcastle: Driven by implement a provider growth in our more mature markets in 2023.
David Mountcastle: As well as early provider growth momentum in newer markets.
David Mountcastle: Adjusted EBITDA growth of approximately 21% at the midpoint of our guidance is expected to be driven by operating leverage in our more mature markets, which should more than offset new market entry costs. We also anticipate our newer markets to contribute significant growth and providers attributed lives and adjusted EBITDA in the future.
David Mountcastle: Our full-year guidance assumes a reduction of approximately $198 million in our top line from 2023, given lower risk exposure from MA capitation agreements. As we continue to invest across our business enterprise, our 2024 adjusted EBITDA guidance absorbs approximately $10 million to $12 million in new market platform investment. We expect to scale our new market significantly in the coming years as we grow our provider base and adjust our lives in these new states.
David Mountcastle: Our full year guidance assumes a reduction of approximately $198 million in our top line from 2023, given lower risk exposure from MA capitation agreements.
David Mountcastle: As we continue to invest across our business enterprise, our 2024, adjusted EBITDA guidance absorbs approximately 10 million to $12 million in new market platform investments, we expect to scale, our new market significantly in the coming years as we grow our provider base at attribute revised in these new states.
David Mountcastle: Our balance sheet and capital position continue to be very strong, with cash of $351 million and no debt. However, similar to previous years, Q1 is typically our lowest cash flow quarter. Our cash balance declined sequentially due to timing differences in cash received at the end of Q4 with the related outgoing payments occurring in January 2024. We also paid our annual employee cash bonuses in March. We expect capital expenditures to be less than $1 million this year as part of our capital-wide operating model.
David Mountcastle: Our balance sheet and capital position continue to be very strong with a cat with cash of $351 million and no debt.
David Mountcastle: Similar to previous years Q1 is typically our lowest cash flow quarter.
David Mountcastle: Our cash balance declined sequentially due to timing differences in cash received at the end of Q4 with the related outgoing payments occurring in January 2024.
David Mountcastle: We also paid our annual employee cash bonuses in March.
David Mountcastle: We expect capital expenditures to be less than $1 million. This year as part of our capital light operating model.
David Mountcastle: This should lead to approximately 80% of our full-year adjusted EBITDA converting to free cash. Finally, we have an undrawn and available $125 million credit facility and plan to continue maintaining a conservative balance. Privia Health remains focused on profitably growing and expanding its business for many years to come and investing to support this growth as we build our national footprint. We would like to thank our physician partners and employees for their dedication and hard work to deliver consistent, solid results quarter over quarter, especially in the current environment. We are now ready to take your questions.
David Mountcastle: This should lead to approximately 80% of our full year adjusted EBITDA converting to free cash flow.
David Mountcastle: Finally, we have an undrawn and available at $125 million credit facility and plan to continue maintaining a conservative balance sheet.
David Mountcastle: Trivia health remains focused on profitably growing and expanding our business for many years to come and investing to support this growth as we build our national footprint.
David Mountcastle: We would like to thank our physician partners and employees for their dedication and hard work to deliver consistent solid results quarter over quarter, especially in the current environment.
Operator: Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And one moment for our first question. Our first question will come from A.J. Rice of UBS. Your line is open.
Speaker Change: We are now ready to take your questions.
Speaker Change: Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: And one moment for your first question.
Speaker Change: Our first question will come from a J rice of UBS. Your line is open.
Albert J. William Rice: Thanks. Hi everybody.
Albert J. William Rice: Thanks, Hi, everybody.
Albert J. William Rice: I appreciate it obviously you step back from the risk.
Albert J. William Rice: Arrangements and trying to provide yourself some more cushion there can.
Parth Mehrotra: I appreciate it, obviously, your step back from the risk arrangements and trying to provide yourself some more cushion there. Can you just comment, though, on, obviously, we've got a second tough year funding environment for MA as we look toward 2025? How about your discussions, how you're looking at it, how your underlying providers are looking at it, and any discussions with the Medicare Advantage plans about adjustments they might be making that will impact you?
Albert J. William Rice: Can you just comment though on obviously, we've got a second tough year funding environment for M&A as we look toward 2020.
Albert J. William Rice: Five.
About your discussions how youre looking at that how your underlying providers are looking at that.
And any discussions with the Medicare advantage plans about adjustments they might be making that will impact you.
Parth Mehrotra: Yeah, thanks for the question, AJ. So a few points. Number one, you know, we've proactively anticipated with our slightly contrarian view over the last 18 months. And so whatever changes we've had to make, we've made them. And so we feel pretty good about how we will execute over the next 12, 24 months. As you can see, we are managing 197,000 lives in MSSP and 171,000 lives in MA.
Speaker Change: Yeah. Thanks for the question a J.
Speaker Change: A few points number one.
Speaker Change: We proactively anticipated.
Speaker Change: With our slightly contrarian view over the last 18 months and so whatever changes we've had to make we've made and so we feel pretty good about how we execute over the next 12 to 24 months.
Speaker Change: As you can see we are managing 197000 lives and MSP 171000 lives in MAA.
Parth Mehrotra: And we're happy to take all the risk we can downstream, as long as we are getting paid, and our providers are getting paid to take that risk. And I think that's where you're going to see some challenges where we clearly see the payers being challenged with the upcoming V28 impact, as they revise their bids and so on, so forth. So while they adjust, it's going to be a discussion on how they are going to enable provider entities like ours downstream, and are they willing to share some of the upside and economics from us taking risk.
Speaker Change: And we are happy to take all the risk weekend downstream.
Speaker Change: As long as we are getting paid in our providers are getting paid to take that risk.
Speaker Change: That's where you're going to see some challenges, where we clearly see the payers being challenged with the upcoming <unk> 28 impact as they revise their bids and so on so forth.
Speaker Change: So while they adjust.
It's going to be a discussion on.
Speaker Change: How they are going to enable provider entities like ours downstream and are they willing to share some of the upside and economics from from us taken risk.
Parth Mehrotra: So we are willing and capable of taking as much risk as possible. We just have to be thoughtful and take it as long as we're getting paid to do so. And there's a positive adjusted event and free cash flow impact, both for our providers and our shareholders. So we'll keep having those discussions, but we're very well positioned to increase our risk.
Speaker Change: So we are willing and capable of taking as much risk as possible, we just have to be thoughtful and take it.
Speaker Change: As long as we're getting paid to do so and there is a positive adjusted EBITDA and free cash flow impact both for our providers and our shareholders. So we'll keep having those discussions but we were.
Speaker Change: Very well positioned to increase our risk book.
Albert J. William Rice: Okay, thanks, all.
Speaker Change: Okay. Thanks, a lot.
Speaker Change: Okay.
Operator: And our next question will be coming from Elizabeth Anderson of Evercore ISI. Your line is open.
Speaker Change: And our next question will be coming from Elizabeth Anderson of Evercore ISI. Your line is open.
Sameer Patel: Hi guys, this is Sameer Vithalan on behalf of Elizabeth Anderson. Congratulations on that solid quarter; maybe just sticking with inflation, just given the mix in contracts, is the 1Q sort of PM PM an appropriate way to think about the PM PMs for the rest of the year, sort of in that 1050 to 1100 range, or do you know how we should think about that for the remaining quarters?
Speaker Change: Hi, guys. This is Sameer Patel on for Elizabeth Anderson.
Sameer Patel: Congrats on a solid quarter, maybe just sticking with any competition just given the mix and contracts is the <unk>.
Sameer Patel: Sort of PMT I'm, an appropriate way to think about the PMT happens for the rest of the year sort of in that.
Sameer Patel: <unk> thousand 50 to 1100 range or how should we think about that for the remaining quarters.
David Mountcastle: Yeah, I mean, obviously, it's still early in the year, but at this point, I would say that's probably a good way to look at it.
Speaker Change: Yes, I mean, obviously, it's still early in the year.
Speaker Change: But at this point I would say, that's probably a good a good way to look at it.
Sameer Patel: Got it. And if I could ask a quick follow-up question, just within your ongoing contracts, have you guys looked to negotiate any sort of off-cycle rate adjustments or any sort of retroactive relief for 2023? I know some of your peers have done that. Do you think there's an opportunity to do so?
Speaker Change: Got it and if you if I could ask a quick follow up just within your ongoing contracts have you guys looked to negotiate any sort of off cycle rate adjustments.
Speaker Change: Or any sort of retroactive relief for 2023, I know some of your peers have done that do you think theres an opportunity to do so.
David Mountcastle: I mean, we've done whatever we had to, as we discussed on our prior earnings call, so at this point, we feel pretty good about 23. We feel pretty good about 24, and we've received a lot of the data for 23. As you would expect, by May of this year, so that's all reflected in our accrual, so you know we made all the adjustments we had. And our next question will be from Joshua Raskin of Nefro Joshua, your line is open. Hi, thanks, and good morning.
Speaker Change: I mean, we've done whatever we have to.
Speaker Change: As we discussed on our prior earnings call. So at this point, we feel pretty good about 'twenty three we feel pretty good about 'twenty four we received a lot of the data for 'twenty three as you would expect by.
By May of this year. So that's all reflected in our accruals. So we made all the adjustments we have to.
Operator: And our next question will be coming from Joshua Raskin of Nephron Research. Joshua, your line is open. Hi, thanks. Good morning.
Speaker Change: And our next question will be coming from Joshua Raskin of Nephron Research Joshua Your line is open.
Joshua Richard Raskin: Hi, Thanks, Good morning, I heard you say you were being more prudent around accrued shared savings I assume that's MSP it maybe across the book, but what are some of the underlying metrics in saving rates that you're tracking suggesting in are you being more conservative than you've been in the past and I guess last part of that is change healthcare.
Joshua Richard Raskin: Outage have anything to do with that.
Joshua Richard Raskin: Yeah, thanks, Josh. So on the first part of the question, you know, it's the same process we've followed over the past many years. We get data across our different books of business, and it's not homogeneous, as you would expect between commercial, MSSP, MA, and then Medicaid. So there are always some nuances in each of these books.
Speaker Change: Yeah. Thanks, Josh.
Speaker Change: So on the first part of the question is.
Speaker Change: At the same process, we followed over the past many years.
Josh: We get data across our different books of business and it's not homogenous as you would expect between commercial MSP MAA and then Medicaid.
Parth Mehrotra: I just think, even if we get, you know, we look at the same trends, effectively the same underlying operating metrics in terms of utilization, inpatient, ED visits, so on and so forth, quality metrics, just by each book. Overall, I think it's early in the year. So while at this point, we feel pretty good about 23 performance, as we've gotten most of the data for 24, it's still, you know, we just ended Q1.
Josh: So there are always some nuances on each of these books.
Josh: I just think even if we get.
Josh: At the same trends effectively the same underlying operating metrics in terms of utilization.
Josh: Inpatient.
Josh: E D visit so on so forth quality metrics.
Josh: Just by each book overall I think it's early in the year. So while at this point, we feel pretty good about 'twenty three performance.
Josh: We've gotten most of the data for 24 its still.
Parth Mehrotra: So I think it's just, given the environment and the utilization trends, I think it's just proven to be much more thoughtful as to what our accrual estimates are. And if there are positive or negative variances over the course of the year, we'll just adjust.
Josh: We just ended Q1, so I think it just just given the environment and the utilization trends I think it's just prudent to be much more thoughtful as to what are accrual estimates are and if.
Josh: This positive or negative variances over the course of the year, we'll just adjust so I don't think its any different than what we've done previously and then on the second point.
Operator: So I don't think it's any different than what we've done previously. And then on the second point, we saw minimal impact from the change. And that's reflected in our strong Q1 practice collections. Whatever little impact we had, it was mitigated pretty quickly with our technology partners. And there continues to be no known compromise of previous provider or patient data. So we don't think that that affected them.
Josh: Yes, we saw minimal impact.
Josh: From change.
Josh: And Thats reflected in our strong Q1 practice collections are whatever little impact we had it was mitigated pretty quickly with our technology partners and there continues to be no known compromise of previous provider of patient data. So we don't think that that impacted anything.
Speaker Change: Gotcha Gotcha.
David Michael Larsen: And our next question will be coming from David Larsen of BTIG. David, your line is open.
Speaker Change: Okay.
Speaker Change: And our next question will be coming from David Larsen of BT AIG, David Your line is open.
Parth Mehrotra: Hi Parth, congratulations on a good quarter. Can you maybe talk a little bit more about your vision for the care delivery components of the business? There's a lot going on in this space. Health plans are under pressure with their STARS ratings. There's a lot of cost tied to GLP-1s, you know, obesity, health, that's having a very significant impact on pharma drug trends. Just like things like putting winning skills in the home or creating preferred narrow networks.
David Michael Larsen: Hi, congratulations on the good quarter can you maybe talk a little bit more about your vision for care delivery components of the business. There's a lot going on in the space Health plans are under pressure with their stars ratings. There is a lot of <unk>.
Speaker Change: Cost tied to G L Q1s.
Speaker Change: Obesity health.
Speaker Change: A very significant impact on pharma drug trend just like.
Speaker Change: It seems like putting winning skills in the home or creating preferred narrow networks.
Parth Mehrotra: And then just related to that Bass Medical Group and San Fran, I just find it interesting that they're gonna be working with a competitor of yours. Just any color on your vision for new products and solutions would be very helpful. Thank you.
Speaker Change: And then just related to that fast medical group in San Fran.
Speaker Change: I just I just find it interesting that they're going to be working with.
Speaker Change: <unk> of yours, just any color on your vision for new products and solutions will be very helpful. Thank you.
David Michael Larsen: Thanks David for the questions. So on the first part, look, I mean, we are differentiated because our business model includes creating a very large Medical Group with Physician Government. Pairing that up with a risk entity and then our full suite of tech and services platform that is serving every single patient and every single provider in a practice across any reimbursement model, I just think that is so differentiated because it gets to what you alluded to.
Speaker Change: Yeah. Thanks, David for the questions. So on the first part look I mean, we are differentiated because we are our business model includes creating a very large medical group with physician governance.
Speaker Change: Bearing that up with a risk entity and then our full suite of tech and services platform.
Speaker Change: That is serving every single patient every single provider in a practice.
Speaker Change: Across any reimbursement model I, just think that is so differentiated because it gets to what you alluded to we can take that broad network.
Parth Mehrotra: We can take that broad network and go to the payers of healthcare and create all kinds of products and services for both the self-insured employer, to large commercial payers, for-profit, not-for-profit blues plans, and then, obviously, to CMS. And I think there will be opportunities for us to help the payers manage risk downstream. It's a community-based physician network, the lowest cost setting in the healthcare ecosystem, and the best relationship with members of the family, whether it's the child, it's the mother, it's a working class person, or it's an elderly person.
Speaker Change: And go to the payers of health care and create all kinds of products and services both to the self insured employer to large commercial payers for.
Speaker Change: Profit not for profit Blues plan, and then obviously to CMS.
Speaker Change: And I think there'll be opportunities for us.
Speaker Change: To help the payers manage risk downstream.
Speaker Change: It's a community based physician network lowest cost setting in the health care ecosystem best relationship with members of the family whether it's the child is the mother of.
Speaker Change: A working class person or at the senior.
Parth Mehrotra: And I think we are trying to take risks in the commercial book, which is pretty unique, and then obviously in MSSP, MA, and Medicaid. And then each of those lines will lead us to innovate to better manage care downstream and have much closer partnerships with the payers. So I think you'll keep seeing us do different things, but I think that's a true differentiation for us where we're not just going to only the PCP and offering one single line of product to take a risk. It's for the entirety of the practice.
Speaker Change: And I think we are trying to take risk.
Speaker Change: In the commercial book, which is pretty unique and then obviously, an MSP at MA and Medicaid.
Speaker Change: And then each of those lines will lead us to innovate to better manage care downstream and have much more closer partnerships.
Speaker Change: With the payers. So I think you will keep youll keep seeing us do.
Different things, but I think that is a true differentiation for us where we're not just going to only the PCB and an offering one single line of product to take risk.
Speaker Change: It's for the entirety of the practice.
Operator: And then for the second question, we covered this pretty extensively in the last call. We're not in the business of delegating claims and taking risks on specialists and so forth. So there's no impact on our economics or vision for what we have to do in California. We think it's a big opportunity, and we work closely with MAS, so I think we covered all of that in the last call.
Speaker Change: And then for your second question I mean, we covered this pretty extensively in the last call.
Speaker Change: We're not in the business.
Speaker Change: Delegating claims and taking risk on specialist and so forth.
Speaker Change: So.
Speaker Change: There is no impact to our economics, our vision for what we have to do in California, We think it's a big opportunity and we work closely with <unk>. So I think we covered all of that in the last call.
Richard Collamer Close: And our next question will be coming from Richard Close of Canaccord Genuity. Your line is open, Richard.
Speaker Change: And our next question will be coming from Richard close of Canaccord Genuity. Your line is open Richard.
Parth Mehrotra: Great. Thank you. Congratulations. Parth, you know, there's been a number of news articles and comments, I guess, coming out of Congress and the FTC about health care M&A and also with the change hack. I guess, Optum has come under a little bit more scrutiny, and there are competitors. So I'm just curious how all that potentially impacts your business, if you're seeing any kind of increased demand in your model, and, you know, maybe comments on the quality of the pipeline would be helpful.
Richard: Great. Thank you congratulations.
Richard: Theres been a number of news articles.
Richard: The comments I guess coming out of Congress in the air.
Richard: FTC about healthcare M&A.
Richard: Also with the change Heck I guess Optum is.
Richard: Come under a little bit more scrutiny and their competitors. So I'm just curious how you think all of that.
Richard: Potentially impacts your business, if youre seeing any kind of increased demand in your model and maybe comment comments on the call.
Richard: Quality of the pipeline would be helpful.
Parth Mehrotra: Yeah, thanks for the question, Richard. I think we have a very unique model. Just tagging on to the last question that David asked, I think what's underappreciated is that we offer a unique model of partnership to physician practices where they can retain their autonomy and yet be part of something bigger across all lines of business, all patients, every single provider. We're not buying physician practices. We don't have non-competes and so on and so forth that restrict them in certain other arrangements.
Speaker Change: Yes. Thanks for the question Richard So I think we have a very unique model just tagging onto the last question that David asked.
Speaker Change: I think what's underappreciated is up.
Speaker Change: We offer a unique model of partnership to physician practices, where they can retain their autonomy and yet be bought or something bigger.
Speaker Change: Across all lines of business all patients every single provider, we're not buying physician practices, we don't have.
Speaker Change: Non competes and so on and so forth that restrict them in certain other arrangements and every time, there's disruption I think physicians are realizing that.
Parth Mehrotra: And every time there's disruption, I think physicians are realizing that Privia can help them in many ways to take better care of patients, get paid for that, and yet retain their autonomy. And I think that's a very differentiated value proposition.
Speaker Change: <unk> can help them in many ways to.
Speaker Change: To take better care of the patients get paid for that and yet retain their autonomy and I think.
Speaker Change: That's a very differentiated value value proposition. So we feel really good as you saw last year, we implemented 699 providers. It was a record year for us.
Parth Mehrotra: So we feel really good. As you saw last year, we implemented 699 providers. It was a record year for us.
Operator: You can see our implemented provider guidance, and we feel really good about the pipeline. The metrics in our mature markets are even better, where over 50% of inbounds are referrals from our existing physicians, and the conversion rates on those are extremely high. And that's the flywheel that gets into effect once we enter a state, we establish ourselves, we have performance history, and then the snowballing happens. So I think as we see disruption in the marketplace, as we see private equity stepping back or not able to do deals, and as we see some of the new VC or private equity funded businesses faltering, I think physician practices are looking for a much more stable partner, and given a strong And our next question will be coming from Andrew Mok of Barclays. Andrew, your line is. Hi, good morning. Can you provide a little bit more detail on...
Speaker Change: <unk>.
Speaker Change: You can see our implemented provider guidance and we feel really good about the pipeline.
Speaker Change: The metrics in our mature markets are even better where over 50% of inbounds are referrals from our existing physicians and the conversion rates on those are extremely high to close.
Speaker Change: And Thats, a flywheel that gets into effect once we entered a state we establish ourselves we have performance history and then the snowboarding happened so I think.
Speaker Change: As we see disruption in the marketplace.
We see private equity stepping back or not able to do deals.
Speaker Change: And as we see some of the new <unk> private equity funded businesses faltering.
Speaker Change: Physician practices are looking for a much stable partner and.
Speaker Change: Given our strong balance sheet cash flow position and how we perform now over the past many years.
Speaker Change: Hopefully it makes us a partner of choice.
Andrew Mok: And our next question will be coming from Andrew Mok of Barclays. Andrew, your line is open.
Speaker Change: And our next question will be coming from Andrew Mok of Barclays.
Andrew Mok: Drew your line is open.
Hi, Good morning can you provide a little bit more detail on the timing related.
Andrew Mok: Items impacting free cash flow in the quarter I understand there is some seasonality there, but it looks like.
Andrew Mok: The impact was a greater degree than we typically see and then it sounded like youre paying more cash bonuses in Q1, even though stock based comp more than doubled in the quarter. I think so can you give us a sense for what's going on there. Thanks.
David Mountcastle: Yeah, so if you go back and look historically, Q1 is always our low cash flow quarter for the year. It's due to, you know, a lot of value-based care agreements paying us in late Q3 or late Q4. And so we receive the cash for those in Q4, and then we end up paying out the amount to our physician partners in January. And it just happened timing-wise where some of the payments, you know, maybe a larger percentage of the payments came in later in the year last year, and so a larger percentage of them got paid in January. And then our annual bonus we pay in March every year. We've done that historically for 10 years.
Speaker Change: Yes. So if you go back and look historically Q1 is always our low cash flow quarter for the year.
Speaker Change: It's due to a lot of value based care agreements paying us late Q3 early or late Q4, and so we received the cash for those in Q4, and then we ended up paying out the amount to our physician partners in January.
Speaker Change: And it just happens timing wise, where some of the payment maybe a larger percentage of the payments came in later in the year last year and so a larger percentage of them got paid in January and then our annual bonus we paid in March every year, we've done that historically for 10 years.
Speaker Change: And so that's just an annual cash.
David Mountcastle: And so, you know, that's just an annual cash item for the quarter. We do expect by the end of the quarter to be – I mean, excuse me, by the end of the year, we should be over $400 million in cash, excluding any business development deals that we do during the year. Oh, yeah. What was the Stockholm question?
Speaker Change: Adam for the quarter.
Speaker Change: We do expect by the end of the quarter to be excuse me by the end of the year that we should be over $400 million in cash excluding any business development deals that we do during the year.
Speaker Change: Stock comp last year.
Speaker Change: Yes, what was the stock comp question.
David Mountcastle: Oh yeah, so from a stock comp perspective, it's effectively a timing difference. Last year, our annual grants occurred in Q2. This year our annual grants occurred in Q1, and so we got a full year of last year's stock comp in Q1 of this year. That's why the Q1 of last year over Q1 of this year comparison looks a little bit odd. Going forward, we expect to do our annual grants in Q1, so we don't expect this will be an issue going forward. For the full year, we're expecting stock comp to be in the $55 to $60 million range. So yeah, there are non-cash stock comps.
Speaker Change: Highlight was higher in this quarter Oh, yes, so yes, so from a stock comp perspective.
Speaker Change: One big difference it is effectively a timing difference last year, our annual grants occur occurred in Q2. This year our annual grants occurred in Q3 or excuse me in Q1, and so we got a full year of last year's stock comp in Q1 of this year. That's why the Q1 of last year over Q1 of this year comparison looks a little bit odd.
Speaker Change: Going forward, we expect to do our annual grants in Q1. So we don't expect going forward. This will be an issue for the full year, we're expecting stock comp to be in the $55 million to $60 million range.
So, yes, our noncash stock comp.
Operator: And our next question will be coming from Jeff Garro of Stevens. Your line is open.
Speaker Change: And our next question will be coming from Jeff Garro of Stephens. Your line is open.
Jeffrey Robert Garro: Yeah, good morning. Thanks for taking the questions. I'll try to compound a few on business development together. So in terms of potential new anchor practices and new markets, any color you can provide on the kind of types of markets, types of practices that you're interested in, and what stages you are in the various processes on that front. And secondly, the script was specific in calling out, you know, potential weaknesses in the provider enablement space.
Jeffrey Robert Garro: Yeah. Good morning, Thanks for taking the questions I'll try to compound a few on business development together. So in terms of potential new anchor practices in new markets. Any color you can provide on kind of types of markets types of practices that you're interested in and and what stage you are in the various processes on that.
Speaker Change: Front and second one the script with specific in calling out potential weakness in the provider enablement space and you've commented a little bit more on that but wanted to ask how that fits into the business development pipeline thinking about kind of potential for horizontal mergers rather than new relationships with <unk>.
Jeffrey Robert Garro: And you've commented a little bit more on that. But I want to ask how that fits into the business development pipeline, thinking about, you know, the potential for horizontal mergers rather than new relationships with new provider practices. Thanks.
Speaker Change: New provider practices.
Parth Mehrotra: I appreciate the question, Jeff. So, look, the pipeline continues to be pretty strong. You know, as you've seen in the past few years, the timing just depends on when we can get the deals done. You know, we're in 13 states, so we have many more states to go. And as you saw in the past 18 months, you know, we could, just given the timing, you could have four or five hit in a pretty short period of time, and then, you know, or some may not hit.
Speaker Change: I appreciate the question, Jeff So the pipeline continues to be pretty strong.
Speaker Change: As you've seen in the past few years the timing just depends on when we can get the deals done.
Speaker Change: When putting states. So we have many states to go and as you saw in the past 18 months.
Speaker Change: We could just given the timing you could have four or five hit in a pretty short period of time and then.
Parth Mehrotra: So I think over time, our target's the same that we alluded to when we went public three years ago. We're going to target one or two new markets every year. It could be higher or lower, depending on when the deals happen.
Speaker Change: Some may not hit so I think.
Speaker Change: Overtime, our targets the same that we alluded to when we went public three years ago, we're going to target one or two new markets every year, it could be higher or lower depending on when the deals happen.
Parth Mehrotra: On the nature of the deals, it'll be similar, again, as to what you've seen in the past three years from us. Given the three components of our business, you know, we're looking to form integrated medical groups, risk entities, and service platforms, and you can see us do each of those three types of deals. Again, it gives us much more flexibility to enter a state than many others. We've acquired medical groups or the tax IDs of medical groups previously, like we did in Washington.
Speaker Change: On the nature of the deals it'll be similar again as to what <unk> seen in the past three years from us.
Speaker Change: Given the three components of our business.
Speaker Change: We're looking to form integrated medical groups risk entities service platforms, and you can see us do each of those three types of deals again it gives us.
Speaker Change: More flexibility to enter a state than many others. We've acquired medical groups. So the tax Ids a medical groups previously like we did in Washington.
Parth Mehrotra: We've acquired MSO entities, like we did with BAS, and we've acquired risk entities, like we did in Connecticut, an IPA or an ACO entity. Our guidance excludes any new markets, and that's what we've done historically as well. So as we enter any new states, whatever the impact might be, you know, we'll update guidance accordingly. And then, to your last half of your question on potential disruption, look, I think you saw an excess of investment in this space, a lot of venture capital dollars chasing physician practices, private equity dollars chasing them, and I think you're going to see some of that unwind over the next few years as you see pressures in MA specifically, which you all are well aware of.
Speaker Change: Quiet MSR, where entities like we did with bass.
Speaker Change: And we've acquired risk entities like we did in Connecticut, and IPA or an ACO entity.
Speaker Change: Our guidance excludes any new markets and that's what we've done historically as well so as we enter any new states whatever the impact might be we'll update guidance.
Speaker Change: Bob.
Speaker Change: Appropriately.
Bob: And then I think the last last half of your question on on.
Bob: On potential disruption look I think you saw in excess of investment in this space a lot of venture capital dollars chasing physician practices private equity dollars chasing them and I think youre going to see some of that unwind over the next.
Bob: Few years as you see pressures in EMEA, specifically that you all are well aware off so I think it gives them whenever disruption happens.
Parth Mehrotra: So I think it gives us, whenever disruption happens, you know, we're a proven model, proven unit economics, proven value proposition to physician practices. So it's just rinse and repeat for us and just being disciplined. And then I think we are in a pretty enviable position to have, you know, close to over $400 million of cash, as David outlined, by the end of this year, and no debt. So I think we're going to be very opportunistic in how we grow the business.
Bob: We are a proven model proven unit economics proven valley.
Bob: Value proposition to the physician practices.
Bob: So it was just rinse and repeat for us and just being disciplined and then I think we are in a pretty enviable position to have.
Bob: Those two over 400 million of cash as David outlined by the end of this year and no debt. So I think we're going to be very opportunistic in how we can grow the business.
Operator: And our next question will come from Jack Slevin of Jeffrey's. Jack, your line is open.
Bob: Yes.
Bob: And our next question will come from Jack <unk> of Jefferies. Jack Youre line is open.
Jack Slevin: Hey, good morning. Thanks for taking my question. Just want to touch on cadence quickly and how you're thinking about that throughout 24. You know, just looking at the fee-for-service side, growth is running a little bit hotter and looks really good in the first half versus the full year guide. And I think the shared savings side also looks pretty strong, even though I know that the conservative accrual approach is sort of what you're taking. So just want to make sure I have my bases covered in terms of, you know, how you're thinking about, you know, the progression of both revenue and earnings over the next couple of quarters. Thanks.
Jack: Hey, good morning. Thanks for taking my question just wanted to touch on cadence quickly and how youre thinking about that throughout 'twenty four.
Jack: Just looking at the fee for service side growth running a little bit hotter and looks really good in the first half versus the full year guide.
Jack: And I think on the shared savings I'd also looks pretty strong even though I know that that conservative accrual approach sort of what you are taking so I just wanted to make sure I havent bases covered in terms of how youre thinking about the progression of both revenue and earnings over the next couple of quarters. Thanks.
David Mountcastle: Thanks for the question, Jack. So, you know, from a seasonality perspective, I think it should be the same as previous years. You know, it's a pretty predictable business on the FIFA service side with seasonal trends, so you should not expect anything different. It's always good to have solid performance in the first couple of quarters so that it positions us really well for the back half of the year. You know, it's still early in the year, and we have reiterated our guidance, but we feel really good.
Speaker Change: Yeah. Thanks for the question Jack So from a seasonality perspective, I think it should be the same as previous years.
Speaker Change: It's a pretty predictive predictable business on the fee for service side with seasonal trends. So you should not expect anything different.
Speaker Change: It's always good to have solid performance in the first couple of quarters, so that it positions us really well for the back half of the year.
Speaker Change: It's still early in the year and we reiterated our guidance, but we feel really good.
David Mountcastle: You know, the variability at this point is really in the value-based book. You know, while we are accruing prudently, as we say on our slide, it's called risk for a reason. So, you know, there can be some elements as we true up for 24, and we'll see how that plays out over the course of this year, but we feel really good about our guidance and our ability to achieve it.
Speaker Change: The variability at this point is really in the value based book.
Speaker Change: While we are accruing prudently.
Speaker Change: As we say on our slide is called risk for a reason so.
Speaker Change: There can be some some elements as we true up for 'twenty, four and we'll see how that plays out over the course of this year, but we feel really good about our guidance and our ability to achieve it.
Speaker Change: If you look at the basketball quarters, we've met or exceeded so.
David Mountcastle: If you look at the past 12 quarters, we've met or exceeded, so, you know, we don't anticipate deviating from that cadence. Hopefully, we'll be able, and our next question will be coming from Lisa Gill, of J.P. Morgan. Lisa, good morning. Morning. It's Cal on for Lisa.
Speaker Change: We don't anticipate deviating from that guidance, hopefully hopefully we'll be able to do the same this year.
Operator: And our next question will be coming from Lisa Gill of J.P. Morgan. Lisa, good morning. It's morning. It's Cal on for you.
Speaker Change: And our next question will be coming from Lisa Gill.
Lisa Christine Gill: Of Jpmorgan, Lisa Hey, good morning.
Speaker Change: Good morning, it's <unk> on for Lisa.
Lisa Christine Gill: I wanted to ask what the performance.
Speaker Change: The capital <unk> book and the fee per service book, just any color you could give on utilization trends within those businesses and then any update on the ramping of new markets and how the physician recruitment is going there. Thanks.
Lisa Christine Gill: Yeah, so on the first half of the question, you know, it's pretty much as expected. We didn't see any big deviations from our accruals or, you know, the data we've received was pretty much as expected. We anticipated whatever utilization trends everybody's seeing. And so that's all that was factored into our initial guidance. And then, you know, what we've accrued for, so we feel pretty good about how we've anticipated some of these trends and reflected that. So, you know, no major differences to report as reflected in ourselves.
Speaker Change: Yes, so on the first half of the question.
Speaker Change: It's pretty much as expected.
Speaker Change: We didn't see any any big deviations from our accruals are.
Speaker Change: The data we received was pretty much as expected we've anticipated whatever utilization trends everybody is seeing.
Speaker Change: So thats all that was all factored into our initial guidance and then what we have accrued for so we feel pretty good about how we've anticipated some of these trends and reflected that so no major differences to report as is reflected in our results.
Bob.
Speaker Change: Groups.
Parth Mehrotra: On the second half of physician recruitment, again, I mean, we see, you know, this is just answering the questions we did a couple of questions ago. I mean, we see a pretty good pipeline, and recruiting remains pretty strong. And, you know, we feel pretty good about our year-end implemented provider guidance. Every provider, given the five, six month lag that we have between signing and implementing is pretty much sold at this point in the year. So we feel pretty confident.
Speaker Change: On the second half on the physician recruitment again, I mean, we see.
Bob: So just answering the questions. We did a couple of questions ago, I mean, we see a pretty good pipeline in recruiting remains pretty strong.
Bob: Sure.
Bob: We feel pretty good about our year end implemented provided guidance every provider to given the <unk> six month lag that we have between signing and implementing is pretty much sold at this point in the year. So so we feel pretty confident.
Operator: And our next question will come from Jeff Tassin of Piper Sandler. Jeff. Hi guys.
Bob: Okay.
Bob: And our next question will come from Jeff Kauffman.
Jeff Kauffman: Of Piper Sandler.
Jeff Tassin: Hi guys, nice quarter and thanks for taking the question. Um, given the conservative posture around MSSP accruals, can you just break down the sequential growth in shared savings revenue a little bit? And I guess just maybe some of that growth is from the shift of lives from full cap to upside downside. But how did you restructure those M.A. contracts to make them so much more profitable? And then just some of the sequential growth implying more favorable pricing in commercial value-based care. Thanks.
Jeff Kauffman: Jeff.
Jeff Kauffman: Hi, guys nice quarter and thanks for taking the question.
Jeff Kauffman: So given the conservative posture around MSP accrual can you just breakdown the sequential growth.
Jeff Kauffman: Your savings revenue, a little bit and I guess, just maybe some of that growth is from the shift of lives from full cap the upside downside, but how did you restructure those contracts to make them so much more profitable.
Jeff Kauffman: And then just some of the sequential growth, implying more favorable pricing and commercial value based care.
Parth Mehrotra: Thanks for the question, Jess. So on the first part, look, I mean, we restructured the contracts effectively to preserve, you know, the EBITDA and earnings power for both our doctors and us. And so that's reflected in the underlying, you know, benchmark expense, what our MLR targets were, and then how we got paid and so forth, and how we shared the risk with the payer downstream. So the payer has some skin in the game. So again, you know, it was pretty much as expected.
Speaker Change: Thanks for the question yes.
Speaker Change: So on the first part.
Jeff Kauffman: Look I mean, we restructured the contract effectively to preserve.
Jeff Kauffman: The EBITDA and earnings power for both the doctors and us and so that that's reflected in underlying benchmark expands.
Jeff Kauffman: What our MLR targets were and then how we got paid and so forth and how we shared the risk with the Bayer downstream. So that Bayer has some skin in the game.
Jeff Kauffman: So again it was.
Parth Mehrotra: And there was a reason we did that. So that you can see, I mean, at the midpoint of our guidance, we're still trying to grow EBITDA over 20%. And in this environment, I think, hopefully, that's just very differentiating, both for our physicians, to keep preserving that earnings power, and then for our shareholders. So I think we feel pretty good across both the MA book and then the commercial book is a basket of, you know, different contracts. We are managing close to 700,000 lives in commercial, which is a pretty big pool.
Jeff Kauffman: Pretty much as expected and there was a reason we did that.
Jeff Kauffman: So that you can see I mean at the midpoint of our guidance, we're still trying to grow EBITDA over 20% and in this environment I think hopefully that's just a very differentiating both for our physicians to keep preserve that earnings power.
Jeff Kauffman: Then for our shareholders. So I think we feel pretty good across both the MA book and then the commercial book as a basket.
Jeff Kauffman: Different contracts, we are managing close to 700000 lives in commercial which is a pretty big pool.
Parth Mehrotra: And I think, again, the care management fees, and you can see the trend of growing care management fees every quarter, that's becoming a pretty big part of our care margin and our EBITDA profile. And that's a very stable part because you're getting BMPMs. So I think that's on top of the fee for service reimbursement. And that, again, speaks to our ability to work with the payers, get paid for the work we do downstream, and acts as a hedge, you know, to prevent or to mitigate some of the volatility we see in the MA book. So overall, we feel pretty good, you know, across all lines of business.
Jeff Kauffman: And I think again the care management fees.
Jeff Kauffman: And you can see the trend of growing care management fees every quarter, that's becoming a pretty big part of our.
Jeff Kauffman: Our margin and our EBITDA profile and Thats, a very stable part because you are getting <unk>.
Jeff Kauffman: So I think thats on top of the fee for service reimbursement and that again speaks to our ability to work with the payers to get paid for the work, we do downstream and acts as a hedge.
Jeff Kauffman: To prevent to mitigate some of the volatility we see in the MA book, So overall, we feel pretty good.
Jeff Kauffman: Across all lines of business.
Operator: And our next question will be coming from Ryan Daniels.
Speaker Change: Thank you.
Speaker Change: And our next question will be coming from Ryan Daniels of William Blair.
Ryan Scott Daniels: Yeah, guys, thanks for taking the question. I'm curious if you can dig a little bit deeper into the pipeline. I know we've already talked a lot about this, but it was a clean quarter, so maybe it makes sense to focus on the future.
Ryan Scott Daniels: Hey, guys. Thanks for taking the question I am curious if you can dig a little bit deeper into the pipeline I know, we've already talked a lot about this but.
Ryan Scott Daniels: Clean quarters, so maybe it makes sense to focus on the future and my question specific to the provider market. We continue to hear about health systems remaining under pressure. They have done a lot of physician group acquisitions that haven't worked out and I'm curious if you've seen any change in the volume of pipeline, specifically as it relates to health systems or larger groups.
Parth Mehrotra: And my question is specific to the provider market. We continue to hear about, you know, health systems remaining under pressure. They've done a lot of physician group acquisitions that haven't worked out. And I'm curious if you've seen any change in the volume of pipelines, specifically as it relates to health systems or larger groups. Thanks.
Ryan Scott Daniels: Thanks.
Speaker Change: Yes. Thanks for the question Ryan So we continue to have a lot of good dialogue.
Parth Mehrotra: Yeah, thanks for the question, Ryan. So, you know, we continue to have a lot of good dialogue across the spectrum. Obviously, the small practices with our sales team, bigger new market entries with big anchor groups, which could be independent medical groups, but much bigger in size, 100, 200, 300 providers, and then obviously, big health systems. You know, I think every time there's some disruption, and it takes time for these to simmer and for strategic objectives to be redefined, if you will, by senior management teams of these organizations.
Speaker Change: Across the spectrum.
Speaker Change: Obviously, the small practices with our sales team bigger new market entries with big anchor groups, which could be independent medical groups, but much bigger in size 100 to 100, 300 providers and obviously, a big health systems.
Speaker Change: I think every time there is some disruption and it takes time for these to similar and strategic objectives being redefined if you will by senior management teams of these organizations.
Parth Mehrotra: Our hope is that we now have a very good track record for the past nine or 10 years, and then specifically since we've gone public, with a lot of publicly available data that, you know, we are hopefully one of the partners of choice that they reach out to. And our BD teams, you know, have their hands full, and they're doing a great job reaching out. It just depends on the nature of the deal and the discussions specifically with health systems. You need a lot of alignment.
Speaker Change: Our hope is that we now have a very good track record for the past nine or 10 years, and then specifically since we've gone public.
Speaker Change: With a lot of publicly available data that.
Speaker Change: We are hopefully one of the partners of choice that they reach out to and our BD teams.
Speaker Change: Has their hands full and they are doing a great job reaching out.
Speaker Change: It depends on the nature of the deal and discussions specifically with health systems, you need a lot of alignment.
Parth Mehrotra: There's a lot of, you know, discussion around how core the employed group is. You know, there have been many reports written about subsidization of physician compensation and so forth by health systems, and I think it's really a health system by health system discussion about the objectives of the senior management team and how strategically we could fit into a long-term relationship with them. When we enter a state, you know, this is not a vendor or a technology partner just selling one particular product.
Speaker Change: There's a lot of <unk>.
Speaker Change: <unk> around how for the employer group is.
Speaker Change: There have been many reports written about subsidies subsidization of physician compensation and so forth by health systems, and I think it's really a health system by health system discussion and the objectives of the senior management team and how strategically we could fit in.
Speaker Change: Into a long term relationship with them when we enter a state this.
Speaker Change: This is not.
Parth Mehrotra: You know, this is a way of doing business, and we are an extension of their physician alignment strategy for hopefully decades to come. So it's a very strategic relationship, and so that just takes time, but we feel pretty good about our positioning and continue to have pretty good dialogue.
Speaker Change: We don't act like a vendor or a technology partner just selling one particular product.
Speaker Change: This is a way of doing business and we are an extension of their physician alignment strategy for hopefully decades to come so it's a very strategic relationship and so that just takes time, but we feel pretty good about our positioning and continue to have pretty good dialogue.
Operator: And our next question will be coming from Whit Mayo of Lee Rink Partners.
Speaker Change: Alright.
Speaker Change: And our next question will be coming from Whit Mayo of Leerink partners.
Whit Mayo: Hey, thanks. Good morning.
Whit Mayo: Hey, Thanks. Good morning Park can you just maybe unpack the growth in attributed lives. It was up 10% probably places you at the upper end or above the guide how much of this is organic or new panels.
Speaker Change: I look at the growth rate of the.
Whit Mayo: Attributed lives, it's growing less than the provider growth and last year. It was growing at twice the rate of the provider growth. Maybe this is just lapping the Delaware ACO deal from last year. So just trying to understand this dynamic thanks.
Parth Mehrotra: Parth, can you maybe unpack the growth in attributed lives? It was up 10%, probably places you at the upper end above the guide, how much of this is organic or new panels, and when I look at the growth rate of the attributed lives, it's growing less than the provider growth, and last year it was growing kind of twice the rate of the provider growth. Maybe this is just lapping the Delaware ACO deal from last year. I'm just trying to understand this dynamic. Thanks.
Parth Mehrotra: Yeah, thanks for the question, Whit. There are two or three factors. Number one, we entered Connecticut last year, as you remember, so that was an acquisition of a pretty big IPA in Connecticut. And so we got close to 185,000 lives. So that obviously distorts some of the year-over-year comparison. As you noted, we exited Delaware, so obviously that gets out of the equation. So I think that also impacts year-over-year comp. And obviously, our focus is to double down on primary care.
Speaker Change: Yes. Thanks for the question. So there are two or three factors number one we enter Connecticut last year as you remember so that was an acquisition of a pretty big IPA.
Speaker Change: In Connecticut, and so we got close to 185000 lives.
Speaker Change: So that obviously distorts some of the year over year comp.
Speaker Change: As you noted we exited Delaware. So obviously that gets out of the equation. So I think that also impacts year over year comp and then the.
Speaker Change: The rest of the growth is pretty much organic.
Speaker Change: Same store in the new practices that join us in each market.
Speaker Change: We are building multi specialty group so <unk>.
Speaker Change: Provider additions include.
Speaker Change: Specialists in addition to primary care or obgyn as a pediatrician. So attributed lives are obviously only linked to primary care, but it is a pretty good mix.
Parth Mehrotra: We're trying to consciously build primary care-centric delivery networks where we get attributed lives, and then we can take that network downstream to the payers, as we just talked about. But those are the puts and takes as to the movement year-over-year.
Speaker Change: And obviously, our focus is to double down on primary care that we're trying to consciously built primary care centric delivery networks, where we get attributed lives and then we can take that network to downstream to the payers as we just talked about so but those are the puts and takes us to the movement year over year.
Parth Mehrotra: Can you just remind me the number of lives in the Delaware ACO just so that we can reconcile the percentage headwind? Yeah, approximately 12,000.
Speaker Change: Can you just remind me the number of lives in the Delaware ACO, just so that we can reconcile the percentage headwind yes.
Operator: Approximately 12,000. And our next question will be coming from Jailendra Singh of Truist. Your line is open.
Speaker Change: Yes, approximately 12000.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And our next question will be coming from Jill interesting of Truest. Your line is open.
Jill Interesting: Yeah. Thank you this is jill interesting from choice.
Jill Interesting: So you called out solid ambulatory trends in the quarter any particular specialties.
Jill Interesting: I guess, you would call out any quantification or directional color there would be helpful. And a quick clarification question did you see anything on the unfavorable would be right in the quarter I know it was pretty small.
Jailendra P. Singh: Yeah, thanks, Jailendra. So it was pretty broad in terms of utilization, so really no specific specialty or fair to call out. You know, we're pretty diverse across 13 states. So I think it was pretty, pretty broad across the board, as you're hearing from everybody else too. And yeah, I don't think there was any major PYD to call out.
Speaker Change: Yes, thanks, Sheila so it was pretty broad based in terms of utilization. So really no specific specialty are fair to call out we're pretty diverse across 13 states. So.
Speaker Change: I think it was pretty pretty broad across the board as you're hearing from everybody else do and I don't think there was any major BYD to call out we have pretty much gotten all data.
Jill Interesting: From 'twenty three now and so that's all reflected in our accruals in our in our results. So we feel pretty good about the estimates we made what we accrued for and then what the actual results. So far have been reflected based on all the data we've got in for 2023.
Parth Mehrotra: We've pretty much gotten all the data from, you know, 23 now. And so that's all reflected in our accruals and our results. So we feel pretty good about the estimates we made, what we accrued for, and then what the actual results so far have been based on all the data we've gotten for 2020.
Operator: And our next question will be coming from Daniel Grosslein of City. Your line is open.
Jill Interesting: Okay.
Jill Interesting: And our next question will be coming from Daniel Crossline of Citi. Your line is open.
Daniel Grosslein: Hi, it's Daniel Gross from Lightwood City. Thanks for taking the question here. I want to go back to some of the comments you made around MA and specifically around capitation as we think about 25 and beyond. And I guess it's really a mechanical question for you. If you see that, you know, you get comfortable after the 25 bids that, you know, you can take risks in a more conservative way in 25 and beyond. How quickly can you move lives back into capitated contracts? Is that a month, two months? Or is it really kind of a 2026 event that we're looking at?
Daniel Crossline: Hi, it's Daniel gross lay with Citi. Thanks for taking the question here.
Daniel Crossline: I want to go back to some of the comments you made around M&A and specifically around capitation as we think about 'twenty five and beyond and I guess, it's really a mechanical question for you if you see that.
Daniel Crossline: You get comfortable after the 2025 bids that.
Daniel Crossline: You can take risk anymore.
Daniel Crossline: Conservative way in 'twenty, five and beyond how quickly can you move lives back into capitation contracts that a month two months or is it really kind of a 2026 that we're looking at.
Parth Mehrotra: Yeah, I appreciate the question. So, you know, two points on this.
Speaker Change: Yes, I appreciate the question.
Parth Mehrotra: You know, number one, it's usually an annual exercise. So, you pretty much start January 1, and so you start having those discussions in Q3, Q4. And then secondly, and this is a more important point, you know, we've always held a view that 100% capitation is probably not the best way to take risks down the road. We prefer deals where the payer has skin in the game, we as the intermediate entity have skin in the game, and the physician performing in those deals has skin in the game.
Speaker Change: Two points on this number one it's usually an annual exercise so youre pretty much start January one and so you start having those discussions in Q3 Q4.
Speaker Change: And then secondly, and I think there is the more important point.
Speaker Change: We've always held the view that 100% capitation is probably not the best way to take risk downstream.
Speaker Change: We prefer deals where the payer has skin in the game.
Speaker Change: As the intermediate entity has skin in the game and the physician performing in those deals have skin in the game.
Parth Mehrotra: And we split our economics 60-40 with our docs, and we prefer, in all instances, ideally, that the payer also has some skin in the game and the economics. And that's because then you don't have any irrational factors influencing outcomes.
Speaker Change: And we split our economic 60, 40, with the docs and we prefer it.
Speaker Change: All instances ideally that the payer also has some skin in the game on economics and Thats. Because then you then you don't have any irrational factors influencing outcome.
Speaker Change: Outcomes.
Speaker Change: So I think there's been this notion that 100% capitation.
Parth Mehrotra: So I think there's this notion that 100% capitation is probably the best way to take assume risk downstream, and we just we just don't have that viewpoint here. So while we like to keep increasing our risk book, we actually prefer to do deals where we are not 100% capitated and assume all the risk. So with that backdrop, as I said earlier, as payers feel all the pressure from v28 by adjusting their bids, you know, adjusting some of the supplemental benefits, so on, so forth, adjusting some of the new drug costs that that may be hitting, ideally, we factor all that in and have a rational discussion with the payers.
Speaker Change: It's probably the best way to take assume risk downstream and we just we just don't have that viewpoint here. So while we like to keep increasing our risk book, we actually prefer to do deals where we are not 100% cap at Ada and assuming all the risk so with that backdrop as I said earlier.
Speaker Change: As the payers feel all the pressure.
Speaker Change: From the 28.
Speaker Change: By adjusting their bids adjust.
Speaker Change: Adjusting some of the supplemental benefits so on so forth.
Speaker Change: Adjusting some of the new drug costs that may be hitting.
Speaker Change: Ideally we factor all that in and have a rational discussion with the payers and in this environment you have to be very conscious downstream.
Parth Mehrotra: And in this environment, you have to be very conscious downstream that you're paid to take risks when you're taking more risks. And I think that's the policy. As we've said, revenue recognition is all over the place in this particular sector, even for the same life. If you're an MSSP, you don't recognize gap revenue. If you're an ACO REACH for the same life, you recognize the entire medical spend. Depending on the level of capitation, you can recognize premium revenue or not.
Speaker Change: That you are paid to take risk when you're resuming more risk and I think that's been the policy.
Speaker Change: As we've said.
Speaker Change: Our revenue recognition is all over the place.
Speaker Change: In this particular sector.
Speaker Change: Even for the same life.
Speaker Change: If you have an MSP you don't recognize GAAP revenue. If you are an ACO reach for the same life you recognize the entire medical spend.
Speaker Change: Spending on the level of competition, you can recognize premium revenue or not.
Parth Mehrotra: We actually just focus on earnings and free cash flow. Ultimately, that's what matters. Can we generate shared savings? Are we getting paid to take risks? Are doctors taking home more pay for the work that they do? And then we're happy to share that with the payers of healthcare. And I think that's probably the best contract you can enter into. So we're going to keep looking for opportunities to do that. We have, you know, close to 170,000 lives in Massachusetts. (inaudible)
Speaker Change: Actually just focus on earnings and free cash flow ultimately, that's what matters can regenerate shared savings, where you're getting paid to take risk our doctors taken home more pay for the work that they do and then we're happy to share that with the payers of health care and I think that's probably the best contract you can enter into so we're going to keep seeing opportunities to do that.
Speaker Change: We have.
Speaker Change: Close to 170000 lives in May 16 at Orange and capitation today, So there's a huge opportunity to keep increasing the level of risk, but we got to be baked to do so.
Operator: And our next question will be coming from Adam Ron of Bank of America.
Speaker Change: And our next question will be coming from Adam Ron.
Adam Matan Ron: <unk> of America.
Adam Matan Ron: Hey, thanks for the question. We heard commentary from many peers in the state that the 2025 Medicare Advantage Rate Notice was disappointing due to lower benchmarks and growth rates for trend assumptions from CMS. And I should probably know this, but how does that actually flow into Medicare Shared Savings? Like, do we already know the benchmarks for Medicare Shared Savings in 2025? And if not, you know, what is your read on it based on the data from CMS, and how does it compare versus, you know, what you think the trend would be and your expectations? Thanks.
Adam Matan Ron: Hey, Thanks for the question. So we heard commentary from many peers in the state of the 2025 Medicare advantage rate notice was disappointing due to lower benchmark and growth rates for trend assumptions from CMS I should probably know this but how does that actually flow into Medicare shared savings like do we already know the benchmarks for medical.
Adam Matan Ron: Our shared savings in 2025.
Adam Matan Ron: And if not what is your read on it based on the data from CMS and how does it compare versus what you would think trend would be in your expectations. Thanks.
Parth Mehrotra: Thanks Adam. So you know any physician payment rate expectations are reflected in our guidance, and we think the impact likely will be a little bit more gradual versus a one-time increase. You know, you get updates from CMS, and you see them when we see them, so you know we have certain expectations and those are all factored, you know, in what we've guided. You know, there are other things you know about the MSSP updates, and we think they're kind of favorable overall, whether it's the assignment process and the benchmark risk adjustment methodology, whether it's quality reporting and the potential to take on more risk, even more so than the enhanced tracks.
Speaker Change: Yeah, Thanks, Adam so any physician payment rate expectations.
Speaker Change: Reflected in our guidance.
Adam Matan Ron: <unk>.
Adam Matan Ron: And we think the impact likely it will be a little bit more gradual versus onetime inquiries.
Adam Matan Ron: You get up based on CMS and you see them when we see them. So.
Adam Matan Ron: We have certain expectations on those are all factored.
Adam Matan Ron: And what we've guided.
Adam Matan Ron: There are other things.
Adam Matan Ron: MSB updates and we think they are they kind of favorable overall, whether it's the assignment process.
Adam Matan Ron: And the benchmark rate risk adjustment methodology, whether it's quality reporting.
Adam Matan Ron: And the potential to take on more risk even more so than the enhanced traction you saw some of those updates come from CMS.
Parth Mehrotra: You saw some of those updates come from CMS. We just think it's a really well-run program, very widely adopted, proven results to generate shared savings, and they've strengthened the overall program, and it's one of the best initiatives that they've had over the past many years. As one of the largest participants, I think we feel pretty good about MSSP, and we'll see how it goes.
Adam Matan Ron: I just think it's already well run program very widely adopted proven results.
Adam Matan Ron: To generate shared savings and they've strengthened the overall program and it's one of the best initiatives that they have.
Adam Matan Ron: <unk> had over the past many years so as one of the largest participants I think we feel pretty good about MSP.
Adam Matan Ron: And we'll see how it goes.
Operator: And there are no further questions; please go ahead, sir.
Speaker Change: And there are no further questions. Please go ahead Sir.
Robert P. Borchert: Thank you for listening to our call today. We appreciate your continued interest and support of our company. Enjoy the rest of your day.
Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: Thank you for listening to our call today. We appreciate your continued interest and support of our company enjoy the rest of it.
Speaker Change: And this concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].